Standards for AP Microeconomics – When Markets Fail

Standard: 6

Name: Market Failure

Markets sometimes fail to reflect the full economic costs and benefits of producing goods, leading to the over- or under-production of goods and services. Additionally, a lack of competition can lead markets to under-produce goods and services.

• K-5: Elementary school students are introduced to the concepts of externalities and public goods.
• 6-8: Middle schoolers learn that externalities and public goods cause problems in the private market.
• 9-12: High school students are formally introduced to the idea of efficiency and learn how externalities, public goods, noncompetitive markets, and lack of property rights can lead to inefficient outcomes.Benchmark Students will know that: Students will use this knowledge to: 6.E.1 The production of goods or services by businesses can sometimes affect people who do not work at the business or buy the product the business produces.Explain how a factory that produces house paint and pollutes the environment around the factory affects those who do not work at the factory or buy the house paint. Explain how the pleasant smells from a bakery can affect people who do not purchase the bakery’s goods. 6.E.2 Public goods and services are those that can be enjoyed by everyone at the same time, and once they are provided, people cannot be prevented from using them—even if they have not paid. Private goods are those that benefit the person buying them and people can’t use them unless they pay for them.Categorize a list of goods and services into public goods (such as national defense, flood protection, and clean air) and private goods and services (such as pizza, automobiles, and movie streaming services). Explain why each good or service was placed in the appropriate category.E: ELEMENTARY STUDENTS National Content Standards in K–12 Economics | 26 Standard 6: Market Failure